Alumina Rises Most in Five Months as Alcoa Dispute Settled

  • Old JV pact was barrier to strategic interest in Alumina: CEO
  • Alcoa remains on track to complete separation in second half

Alumina Ltd. shares climbed the most in five months after settling a dispute with its joint-venture partner Alcoa Inc., a move that may spur takeover interest in the Australian company.

Shares of Alumina, a partner with Alcoa in the world’s largest bauxite and alumina producer, rose 5.8 percent to close at A$1.38 in Sydney, the most since March 7. The stock is up 19 percent this year.

The agreement with Alcoa, the biggest U.S. aluminum maker, eases restrictions on the operations and investment in their Alcoa World Alumina & Chemicals joint venture, allowing Alumina greater flexibility and enhancing its takeover appeal. The two companies agreed to the amendments to clear the way for separating Alcoa’s manufacturing business from its legacy smelting and refining segments.

“These provisions have acted as a barrier to strategic interest in Alumina Ltd. in the past,” Alumina Chief Executive Officer Peter Wasow said on a call with analysts and investors on Friday. On a later media call, he said no potential acquirers are circling the company at the moment.

Simplify Policies

In the event of a change of control of either partner in the future, the agreement will allow either Alcoa or Alumina to expand or develop projects inside the joint venture even if the other chooses not to participate. It will also simplify AWAC’s dividend and cash management policies and require that AWAC raise a limited amount of debt to fund future growth projects.

“That’ll take pressure off the individual partners, which means the balance sheet for Alumina won’t be stretched as it was,” Peter O’Connor, a Sydney-based analyst with Shaw and Partners Ltd., said by phone. “It’s made it a more transparent way for third parties to become involved.”

Alcoa CEO Klaus Kleinfeld plans by year’s end to group its smelters, mines and power assets into a stand-alone entity that will keep Alcoa’s name. Alumina had vowed to block the split, saying it would harm the joint venture’s business and violate the terms of its deal. With the accord, Alcoa remains on track to complete its separation in the second half, according to a statement.

‘A Pathway’

Under the deal, the companies agreed to drop the litigation. Alcoa had sued Alumina in May, seeking to bar its partner from interfering with the company’s break up. The two companies set up their joint venture involving bauxite and alumina mining, along with manufacturing operations, in 1994. Alcoa holds a 60 percent interest while Alumina has 40 percent.

“Alcoa didn’t really give up anything that materially impacts their valuation,” Anthony Young, an analyst at Macquarie Group Ltd., said in a telephone interview. “It gives them a pathway to achieve that goal of splitting the company.”

Alcoa fell 0.4 percent to $10.09 at 12:27 p.m. in New York, headed for a third drop in four sessions. The shares have gained 2.1 percent this year.

Citic Group Corp., one of China’s largest state-owned investment companies, is the largest shareholder in Alumina with a 17.9 percent stake, according to Bloomberg data.

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